Philly’s city budget is balanced, but structural deficit and federal funding concerns loom, board warns
Officials warned of potential risks outside the Parker administration's control, including major financial challenges being faced by SEPTA and the School District of Philadelphia.
A state board that oversees the City of Philadelphia’s finances signed off on Mayor Cherelle L. Parker’s five-year financial plan on Tuesday, despite a structural deficit and significant uncertainty about future federal funding.
The Pennsylvania Intergovernmental Cooperation Authority, which was established in the early 1990s to monitor the city’s finances amid a severe fiscal crisis, must every year approve the five-year budget plan agreed to by the mayor and passed by City Council. The board voted 5-0 to green-light the plan.
In June, Parker and Council agreed to a $7.1 billion budget for the fiscal year that began on July 1, as well as a five-year financial plan in which the city is projected to spend more than it generates in four of those years. This fiscal year, the city is projected to spend about $550 million more than it brings in.
As has been common in recent years, the city’s budget relies on reserves and an existing surplus to avoid a significant deficit. The city is projecting that this year it will have a $364.6 million fund balance, which is the amount of money left over in the city’s general fund after liabilities are accounted for. That balance is set to decline in each of the next five years.
Parker administration Finance Director Rob Dubow said the city is on track to unlock hundreds of millions of dollars in additional revenue once its pension fund is fully funded, a major milestone that is projected to take place in fiscal year 2033.
Also on Tuesday, Alan C. Kessler was unanimously elected to serve as chair of the PICA board after Kevin Vaughn, who has chaired the board for a decade, announced he would not seek reelection to the position. He intends to remain a board member, he said.
Kessler, who has also served on the board for about a decade, is a commercial litigation attorney. He is a prominent fundraiser in the Democratic Party and has long been active in local and national politics.
As for the city’s financial position, board members on Tuesday also discussed potential risks that are largely outside the Parker administration’s control, such as the funding issues that both SEPTA and the Philadelphia School District have faced in recent years. The transit authority has warned of the possibility of debilitating service cuts, and the public school system is borrowing hundreds of millions of dollars just to pay its bills.
Parker had earlier this year proposed implementing a tax on rideshare services to generate about $50 million a year for the district, but Council members rejected her plan.
Administration officials identified existing funding for the district to stave off planned staff cuts. Dubow said Tuesday that cuts were made in each year of the five-year plan to make up for that money, but that the hope is to reach an alternative, recurring revenue generation plan before the cuts would take effect.
The biggest uncertainty for Philadelphia’s finances, the board said, is the federal government and potential policy shifts affecting funding under President Donald Trump. PICA officials warned in a report that while the city has so far sustained only limited losses as a result of slashed grants under the Trump administration, the city “will not be able to absorb federal funding reductions at a greater scale without significant service reductions.”
The city received more than $2.2 billion in aid from the federal government in fiscal year 2024, the most recent data available. More than half that money was for healthcare and other social safety net programs for poor and disabled residents.
The president has repeatedly threatened to cut off federal funding to cities like Philadelphia that are led primarily by Democrats and have relatively permissive local immigration policies. However, those efforts have been tied up in litigation.
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A more pressing concern for the city, PICA officials wrote, could be the changes made last year to the enrollment criteria for social programs like Medicaid and the Supplemental Nutrition Assistance Program (SNAP).
Philadelphia is one of the poorest big cities in the nation, and hundreds of thousands of residents rely on government assistance. The Pennsylvania Department of Human Services has estimated that changes to Medicaid instituted under the Trump administration will leave more than 73,000 Philadelphians without coverage by next year.
And, the PICA report warned: Changes to federal programs can have ripple effects.
“The fiscal crisis that precipitated the creation of PICA in the 1990s,” officials wrote, “was in part due to dramatic reductions in federal programs for vulnerable individuals that the City tried to manage but was incapable of replacing.”
